Banks frequently use credit risk insurance to hedge portfolios, alongside derivatives, outright loan sales and significant risk transfers. By sharing the risk of losses with insurers or investors, lenders free up regulatory capital that can then be used to bid for more business.
Barclays Plc is looking to buy default protection on more than $10 billion of debt to finance artificial intelligence infrastructure in a bid to create capacity for more lending as hyperscaler funding needs soar.
The London-based lender has been assessing the appetite among insurers in recent weeks to provide credit risk cover for the loans, according to people familiar with the matter.
The talks are exploratory and final decisions on the size and timing of any deals have yet to be taken, they said, asking not to be identified because the discussions are private. A representative for Barclays declined to comment.
Banks frequently use credit risk insurance to hedge portfolios, alongside derivatives, outright loan sales and significant risk transfers. By sharing the risk of losses with insurers or investors, lenders free up regulatory capital that can then be used to bid for more business.
As the AI-buildout accelerates, credit risk insurers have taken on greater exposure to data center finance, according to a survey from Willis Towers Watson Plc released in May. Still, there are signs that their capacity to underwrite much more may be drying up, given the sheer scale of demand.
Several providers of so-called non-trade credit risk insurance had indicated that they were “approaching sector limits or are already full on data center exposure,” according to the Willis survey.
With global spending on data centers projected by McKinsey & Co to hit $6.7 trillion by 2030, debt financing is expected to play a much bigger role. The strain is already starting to show.
A measure of Meta Platforms Inc. credit risk hit a record high last week as plans to ramp up capital spending reignited fears of more debt issuance. Citadel’s co-chief investment officer, Pablo Salame, said Monday that the credit market is “getting jammed right now because it hasn’t figured out a good way” to offload risks linked to the borrowing binge.
Barclays is looking for insurers to cover more than 50% of the credit risk on some of the AI-linked facilities, one of the people said.
Bloomberg